Tag Archives | payroll

Payroll Accounting

See also:
Commission Accounting
PEO Arrangement Compared to Outsourcing Payroll
Direct Labor
Pension Plans
Federal Unemployment Tax Act (FUTA)
Outsourced Accounting Services

Payroll Accounting

Payroll Accounting is the function of calculating and distributing wages, salaries, and withholdings to employees and certain agencies. It is generally done through different documents such as time sheets, paychecks, and a payroll ledger. Payroll Accounting also involves the process of issuing reports to upper management, so that they are able to make informed decisions about the company’s labor-cost data.

Payroll Accounts

Below are some payroll basic accounts that are used in association with accounting payroll entries as well as a description of each one and the relevance towards payroll.

Assets

Cash is the petty cash account which is used to empty the accrued payroll account when the payroll is distributed to the company’s employees.

Liabilities

Accrued Payroll represents a liability calculated by taking the gross pay and subtracting all deductions, or the amount that is due to the employees.

Federal Income Taxes Withheld

This account serves as a deduction from the gross pay or payroll account. It is an accumulation of payroll taxes as a percentage amount which is due to the U.S. Government. Payroll tax rates differ from business to business.

Federal Insurance Contributions Act (FICA) Taxes Payable

The FICA Taxes Payable represents a liability that is due to the U.S. Government. It is then used to fund institutions like Medicare and the Social Security Administration.

Insurance Withheld

Insurance withheld is another deduction from the gross pay and represents a contribution to the employee’s insurance provided by the employer.

Note: Other voluntary payroll deductions and withholdings can be present like bond or stock withholdings that a company would use for investments on the employee’s behalf. Other deductions include union dues or pension funds that the company may hold for its employees.

Expenses

The payroll account is the gross pay that is calculated by a payroll accountant (i.e. the salary payment or the hourly rate times the number of hours worked).

Payroll Accounting Journal Entries

This is a typical accounting payroll example of journal entries when a company is calculating and distributing the payroll.

Account                           Dr.               Cr.

Calculation:
Payroll                           xxxx

Federal Income Taxes Withheld                       xxxx

FICA Taxes Payable                                  xxxx

Union Dues Withheld                                 xxxx

Bond Withholdings                                   xxxx

Accrued Payroll                                     xxxx
Distribution:
Accrued Payroll                   xxxx
Cash                                                xxxx

Payroll Accountant Duties

Oftentimes, companies outsource their payroll accounting to specialized firms. These firms can perform the same function for a much lower cost than if the company generated them in-house.


Click here to download: The Guide to Outsourcing Your Bookkeeping & Accounting for SMBs


There are six major job functions that the payroll department or specialized company must perform throughout the year, including the following:

1)  Compute gross pay (hourly or salary)

2)  Compute the total amount of deductions (FICA, taxes, etc.)

3)  Calculate the total amount due to employees i.e. the gross pay minus the amount of deductions.

4)  Authorize the amount of payments due to employees.

5)  Distribute the payroll once authorized.

6)  Issue reports to upper management concerning labor-cost data.

Accounting Payroll System

In the past, accounting payroll systems consisted of two journals. The first is the payroll journal. Then, the second is the payroll disbursements journal. Companies used the payroll journal to accrue for salaries and wages towards employees as well as government obligations withheld from the employee’s paycheck. Thus, companies used disbursements journal to pay off these accumulated accruals when they became due.

But thanks to computer systems like Peachtree and Quickbooks, they have combined both of these journals into a payroll ledger. Furthermore, you can outsource these payroll functions at a lower cost and efficiency for a company.

Guide to Outsourcing Your Business's Bookkeeping and Accounting


Payroll Accounting

Originally posted by Jim Wilkinson on July 24, 2013. 

Share this:
1

PEO or Outsource Payroll

See Also:
Advantages of a PEO
What is a PEO?
How to Select a PEO
Professional Employer Organizations FAQ’s
Service Department Costs

PEO or Outsource Payroll

Do you have a PEO or outsource payroll? Under the PEO Arrangement, there is a co-employment relationship in which both the PEO and the Business Owner have an employment relationship with the employees. Contractually, the PEO and the Business Owner allocate and share many of the traditional employer responsibilities and liabilities. For example, the PEO assumes responsibilities and liability for employment related matters such as Payroll and Payroll Taxes, Employee Benefits, Human Resources Management, and Safety and Risk Management. As a result, the Business Owner can concentrate 100% on growing their Business.


Click here to download: The Guide to Outsourcing Your Bookkeeping & Accounting for SMBs


Outsourcing is a contractual arrangement, absent an employment relationship, with a vendor (and its supervised personnel), for services, either on the customer’s premises or off-site at the vendor’s location, to perform a function or run a department that was previously staffed and supervised by the customer directly. Furthermore, examples include: Payroll Processing, Financial Auditing, Agent of Record Services, and Legal Services.

Today’s Professional Employer Organization (PEO) is a “hybrid” of all of the honorable characteristics of the Staff Leasing Business Model. In addition, combine it with all of the efficiencies of the Outsourcing Business Model.

Guide to Outsourcing Your Business's Bookkeeping and Accounting


If you’re interested in becoming the trusted advisor your CEO needs, then download your free How to be a Wingman guide here.

PEO or Outsource Payroll

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

PEO or Outsource Payroll

Originally posted by Jim Wilkinson on July 24, 2013. 

Share this:
1

A Tale of Two Bank Accounts

technology substitutes bank accounts

Do you ever have those thoughts that haunt you in the middle of the night? Well, for me, it was 2 AM one night and I thought to myself, “Why on earth do I have two bank accounts?!”

As time passes and technology progresses, the need for multiple bank accounts seems irrelevant. Think about it – you have twice, maybe three times the burden of maintaining, tracking, and paying for multiple  accounts. There are many reasons someone would want to, so let me share mine with you.

Reasons for Having a Separate Payroll Account

Security

Assuming you hand out physical checks to your employees, having a separate payroll account can keep employees from having access to your operating bank account number.  Since most payroll accounts are only funded at the time of a payroll run, the company’s dollar exposure to theft is limited.

Separate accounts for payroll and accounts payable enhances internal controls and enables the company to choose which individuals within the company have access to the bank accounts.  The person processing A/P checks might not be the person you want having access to your payroll account.

Hacking is also a major issue, especially in finance. Many people believe that a second bank account will make sure payment is available only when needed. In case of a frozen bank account, lost credit cards, or stolen identity, a separate bank account is a good fallback.

Organizing Tasks

If you have many employees and many vendors, reconciling one account with all transactions can be messy.  Having separate accounts for payroll and operating expenses can streamline the reconciliation process.

When you have a separate payroll account, it also makes easier to locate lost, stolen or forged payroll checks.

Having trouble figuring out how to become a better financial leader? Take your business to the next level with our 3 most powerful tools!

Our Thoughts…

A business may have good reasons for separate bank accounts, but here are a couple of reasons why you might reconsider.

1. Electronic Payroll Processing

In the old days, you only put enough in payroll to prevent fraud, make the bank reconciliation easier, and limit authority. You can do this all electronically now. There are apps and websites available to help with payroll. Additionally, they include fraud prevention and aid with taxes. The need for a separate bank account with manual tracking is obsolete, because technology has your back!

2. Apps to Deal with Operating Expenses

technology substitutes bank accountsYour operating account generally handles customer deposits and vendor payments. Businesses
may also use this separate account to pay for other overhead expenses such as sales dinners, store purchases, etc.

But again, technology has simplified this process. I attended a conference a couple of months ago, and one of the vendors focused on automating day-to-day transactions within companies. Many vendors offer auto-draft and many customers pay via ACH.

Accounting software such as Quickbooks interfaces directly with your credit card account allowing you to automatically upload, code and approve transactions in minutes rather than the hours it took just a few short years ago.

There are many more reasons to have multiple bank accounts, but many more reasons not to. For every new bank account created, there are hundreds of apps and websites to serve the same purpose.

Embracing Change

Speaking of change, you should reconsider the way you’re doing things since times are changing. Are your business habits the best practice? I’m 60 years old. There, I said it. Yet I work with young entrepreneurs every year. Why am I 60 years old and thinking like a baby entrepreneur? Because I made the conscious decision to adapt and change. You can, too.

“That’s cute, but don’t tell anyone about it.”

Ever heard of Kodak, and how it failed? Kodak is a perfect example of how missing your technology window might destroy you in the long run. In 1975, Steve Sasson invented the first digital camera. However, management replied, “That’s cute, but don’t tell anyone about it” (via The New York Times). Not long after, Sony came out with the first digital camera to be sold.

What might have happened, if Kodak actually supported the new digital movement? Could they have avoided bankruptcy and held onto their status as an industry leader? They might have been the company to look to for more technologies, but instead, the management of Kodak was in denial. We can all learn from this, and trust technology to handle some of our business.

Don’t be a Luddite

In my experience, many financial leaders are late adopters of technology. If there is a new and easier way to implement a task, the financial leaders are the last to get on board. Imagine how that trickles down throughout the business – the managers are the last to implement the change, the employees, and then the customers. Pretty soon, you’ll be irrelevant compared to the competition. How do we stay relevant in our industries? By adapting to change.

As we explained in our blog, “Are you a Luddite?” technology is not stealing jobs, it is creating new roles. Technology can eliminate the need for multiple bank accounts and make things easier for you. Don’t make things more complicated for your business than you need to!

Conclusion

The technology movement is a hot button topic – even when discussing multiple bank accounts. This is because there are so many technologies for so many purposes.

Depending on your business, you may need to open another bank account. Whether you have another location, or if you have a separate entity under your business, you may consider this option. However, you’ll be paying extra bank fees, manually tracking double the account activity, and reconciling twice as many accounts. Your business should grow, not the number of accounts you have to fund it.

Take a chance, make a change. Download our 3 most powerful tools and help advance your business! 

technology substitutes bank accounts

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

technology substitutes bank accounts

Share this:
1

The Red Flags of Fraud

Businesses lose millions (if not billions) of dollars due to fraud. But how do so many cases of fraud go unnoticed until the damage is done?  Often, it’s because businesses don’t recognize the red flags of fraud soon enough.

Working with many entrepreneurs and their companies for the past 25+ years, I have unfortunately have come across numerous instances of fraud in companies.  The harsh reality I’ve discovered is that if an employee wants to commit fraud, they can do it.  It’s just a matter of how easy you make it for them.

If you suspect there may be fraud in your company, start by confirming that your unit economics are in line with expectations. Download the free Know Your Economics guide to break down what’s going on in your business.

Red Flags of Employee Fraud

One of the most noticeable warning signs of fraud is employee behavior.  Do they act controlling or feel the need to over-compensate their role?  If your employee needs to have sole responsibility, or if he or she needs to have the final say in a decision, it’s probably a good idea to monitor that employee’s activity to determine the reason for their behavior.

Here are some other behavioral signs of fraud to look for:

Refusal to take mandatory vacation or sick leave

Coworkers and managers love an employee who never takes a vacation and works hard.  Many of us wouldn’t question this behavior because it’s getting us faster results.  Sometimes, what looks like hard work is actually an employee covering their tracks.  Employees, particularly those working in a position where fraud is more likely, should be required to take time off.  This not only short-circuits fraudulent activity, but it ensures that employees are cross-trained.

Employee lifestyle changes (new house, expensive jewelry, cars or home)

According to a 2014 Global Fraud Study, 43.8% of occupational fraudsters live beyond their means. Does your employee have a better house than you? What about his or her car? Here’s my general rule of thumb: if your employee has nicer belongings than you, that’s a red flag. It’s time to check your books.

One time, I recommended to one of my clients that she should outsource her payroll to an external payroll service. I usually recommend this because it’s easier and less-prone to fraud. Rather, my client declined this suggestion and claimed that she could do payroll better than a service.

This client always dressed nicely, to the T. She’d walk in with a kind of confidence and drove a nice car (nicer than her boss!). Everyone saw her as a nice person, because she offered to stay back and let the cashiers go home.

Seems like the perfect employee, right?

Actually, it turns out that she had been cashing checks to herself by voiding cash transactions and pocketing the cash. See what I mean? If your employee has nicer belongings than you, that’s a red flag. It’s time to check your books.

Significant personal debt and/or credit problems

Ideally, a company should perform background and credit checks before hiring. However, some companies just don’t want to go through the paperwork.

For example, one client I had never made copies of their original checks. When I did my audit, I found half a dozen missing checks. The controller had been running the checks for his own personal use.

One day, the controller went to lunch and never came back. After running a background check, we found out that he was convicted of embezzlement five years prior.

Borrowing money or requests for pay advances

In the same study, 33% of occupational fraudsters have financial struggles or difficulties. When a fraudulent employee steals or “borrows” money, oftentimes he or she will rationalize. “It’s okay, I’ll just pay them back later.”

For instance, let’s say someone is in charge of a company credit card and uses the company credit card on accident. When she gets to work the next day, it’s written off. No one questions the personal expense. So then a pattern begins – an accumulated rationalization that she will “pay it back later.”

Easily annoyed at reasonable questions

If an employee snaps because of an obvious or reasonable question, he or she is likely suffering from guilt or preventing the questioning from going further into detail. If this ever happens, keep asking questions. You’re bound to get the answer you’re looking for (even if you don’t like it).

There are many other signs or “red flags” that you should be aware of. However, controlling behavior doesn’t always reflect fraudulent employees. Basically, all you need to know is: be careful who you trust, be aware of your employees’ behaviors, and know your economics.

Where are the red flags in your financials? Calculate your unit economics with our free guide!

How to Prevent Fraud

Outsource your Payroll

Payroll processing is a hot area for fraud to occur.  Because of this, I recommend payroll to outsourced companies because it’s easier to prevent fraud. Instead of keeping track of multiple employees’ checks, you only have to write one. The person writing the checks (you) is not the same person running the transaction.

Know your Economics

If you are regularly checking to see that your unit economics are in line with expectations, it’s more difficult for fraudulent activity to go unnoticed.  Anomalies will come to light and be investigated and resolved sooner.  Creating an environment where business performance is closely monitored discourages fraudsters much like an alarm system on your house discourages burglars.  If you perform a consistent audit within your company, you’re less prone to fraudulent activity.

Perform Background and Credit Checks

Save yourself the heartache of dealing with fraud in your company and invest in a regular background check process. You never really “know” your new employees until you’ve worked with them for a couple of years, but at least you’ll have their “red flag” behavior in writing.

Conclusion

In conclusion, security is not only an issue externally. Here are a few key points to take with you: If your employee in a position of trust has a nicer car than you and nicer clothes, check your books. Stay aware of your employees’ behavior. Be prepared – do background and credit checks on your new hires. And finally, don’t wait until a crisis to know your economics. Want to create an environment that discourages fraud?  Keep track of your company’s economics with our free guide and start taking a closer look at what’s going on in your business.

red flags of fraud

Connect with us on Facebook. Follow us on Twitter. Become a Strategic CFO insider

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs


red flags of fraud

 

Share this:
1

Social Security Rate

Social Security Rate Definition

The social security rate definition is a tax taken out of employees and employers salaries and wages. This tax goes towards the social security program in the United States. The founders built this program to provide benefits to eligible retired persons.

Social Security Tax Rate Meaning

The current social security tax rate withheld from each paycheck is in the amount of 6.2%, and is equally contributed for by the employer making the total 12.4%. For example, the social security tax cap 2010 is equal to $106,800. This means that once an employee has made earnings of this amount there can be no further tax taken out for that employee’s paychecks. Furthermore, these calculations are normally not performed by the employee. Instead, the payroll department or an outsourced function calculates the social security rate.

Social Security Tax Rate Example

For example, Bob works for Testacorp Inc. his annual salary is $200,000 which he receives in a paycheck every two weeks for $8,333. Therefore, Social Security requires Bob to pay a social security tax. The amount for his first 13 paychecks equals $516. After these paychecks, Bob’s cumulative earnings are above the threshold of $106,800.

If you want to overcome obstacles and prepare to react to external factor, then download the free External Analysis whitepaper.

social security rate, Social Security Tax Rate

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

social security rate, Social Security Tax Rate

See Also:
Payroll Accounting
Deferred Income Tax
Tax Brackets
Flat Tax Rates
How to Maintain an effective Job Schedule

Share this:
0

Develop a Controller

See Also:
Hire a CFO Controller
How to Compensate Sales Person
How to Form an Advisory Board
Train People For Success
How to write an Action Plan

Skills to Develop a Controller

1. Accounting Skills

Keep up to date on the latest accounting rules and know which rules apply to your company. Are you publicly traded or privately held? Cash or accrual basis? Know when to call in help, if the company has auditors, seek assistance if needed.

Management of an accounting staff is an important skill for a controller. Knowing the most efficient way to structure an accounting department and the skills that you can expect from various levels of staff will allow you to accomplish the work load cost effectively.

2. Human Resources Skills

This area often falls under the umbrella of the controller in smaller companies. Areas to be aware of include the following:

  • Paperwork needed when an employee is hired
  • Steps to take to document performance problems
  • Illegal questions in a job interview
  • How to legally perform drug testing
  • How to legally perform background checks

It is an extremely important area to keep the company out of legal trouble. Know when to seek outside assistance. There are consultants whose practices are specifically to provide guidance for smaller companies.


Download The 5 Guiding Principles For Recruiting a Star-Quality Team


3. Insurance Knowledge

Knowledge of health, workers compensation and liability insurance is helpful. The controller is often responsible for shopping for policies that best fit the needs and budget of both the company and the employees. There is a trade off between premium and coverage and the controller needs to be able to make the appropriate evaluations.

4. Tax Knowledge

Taxes are an area that can create enormous liability for a company. Knowing what taxes apply to the company’s business and who to call for help is critical. Tax issues to be cognizant of include the following:

Be aware that unrecorded tax liabilities can put a company out of business or endanger the value of a company in a sale transaction.

5. People Skills

In the controller role, people skills are extremely important as the interactions with stakeholders, both inside and outside the company, are numerous, including the following:

  • Positive interactions add credibility
  • Managing the entrepreneurial owner is important in order to meet their expectations and information needs. They must have comfort in knowing that the controller duties are handled well
  • Managing employees is also a key relationship in order to have happy, productive employees. Employee turnover is costly.

Managing all these relationships is necessary to maximize your effectiveness.

6. Payroll Knowledge

Whether in-house or out-sourced, payroll knowledge is critical. Some important areas for a controller include the following:

  • Understanding the paperwork required in order to withhold from an employee’s paycheck
  • The payroll requirements of the various states where the company has employees
  • When manual payroll checks are cut, the rules for remitting withheld taxes timely
  • Which payments to employees are taxable
  • Payroll implications of accountable versus non-accountable expense reimbursement plans
  • The payroll tax relationship of where an employee lives and works

Before your hire your next Controller, download and access your free white paper, 5 Guiding Principles For Recruiting a Star-Quality Team.

develop a controller

Strategic CFO Lab Member Extra

Access your Recruiting Manual Execution Plan in SCFO Lab. The step-by-step plan recruit the best talent as well as avoid hiring duds.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

develop a controller

Share this:
0

Electronic Funds Transfer (EFT)

See Also:
Electronic Data Interchange
Technology Assessment Criteria
How to evaluate IT systems
How Redundant is Your Data Communications Link?
Research and Development

Electronic Funds Transfer (EFT) Definition

Electronic funds transfer (EFT) refers to an electronic financial transaction. According to the U.S. Electronic Fund Transfer Act, an EFT is a non-paper financial transaction initiated via computer, or another electronic terminal, that gives a financial institution authorization to debit or credit an account. And EFT may also be called a wire transfer.

Electronic funds transfer transactions are quicker and more efficient than paper-based funds transfers. They can also eliminate paperwork and needless administrative efforts. Examples of common electronic funds transfer transactions include the following:

EFTPOS Meaning

The EFTPOS acronym stands for electronic funds transfer point of sale. This refers to electronic funds transfers made at point of sale terminals in retail outlets. When the customer uses his or her debit, credit, or charge card at the check out counter, the customer can opt to take out cash using the card. Furthermore, this type of EFT is common in Australia and New Zealand.

electronic funds transfer

Share this:
0

LEARN THE ART OF THE CFO